UPDATE: The Feed-In Tariff is now closed for new applications. To find out about the new scheme designed to replace it, click here.
You might be thinking about buying a house with solar PV already installed, or you might have solar PV on your roof and you are looking to sell your property.
In the article below we look at whether solar PV increases the value of the home and some of the factors at play.
Does solar PV really increase the value of my home?
Solar PV is still a very attractive option for many homeowners. Despite the fall in the feed-in tariff, the price of solar panels has dramatically fallen too, so you can now get a large 4kW solar PV system installed for just £6,000 – back in 2010 the same system may well of cost double that.
To be honest, provided you get it installed by a MCS installer and you can claim the FIT payments then the payback is just 8 years and then you will receive a return of £800 (based on a 3.5kW system) for another 12 years after that (so 20 years in total). So from a pure investment point of view – the solar PV is surely a shrewd one.
Effect of the feed-in tariff on value of your home
One thing that people don’t tend to take into account is the effect of solar PV on the value of their property. Now the feed-in tariff payments go to the resident of the home (or the investment company when you consider the solar rent a roof schemes). This means that that you will get a physical financial return for 20 years after installing the payments. If you sell your house 2 years after you have paid for the solar PV installation then the new residents will take over this payments – they will have bought a cash generating asset when they bought the house. This should therefore help increase the value of the house, although the extent to which it does depends on when the new residents moved in. Obviously the sooner you sell the property having invested in the solar panels, the more the install is worth to the new owner.
The distance you are through the Feed-in tariff therefore has a huge impact on the value of your solar PV system and the value of the house as a whole when you come to sell it on. This doesn’t even take into account the savings produced on you energy bills since you can use the electricity you produce meaning you don’t need to buy it from the grid at a cost of 15 per kWh.
When did you get the solar system installed?
Not only does the distance through the feed-in tariff play a large part on the value that the solar system adds to your home – the year the solar system was installed also impacts this.
The reason for this is the feed-in tariff payments have reduced over time, so in October 2011, the amount paid for each unit of electricity produced from the solar system was 43.3p / kWh. Now (January 15) the rates are just 13.88p / kWh. In addition the payment used to be made for a total term of 25 years. Now the feed-in tariff is just paid over 20 years.
This means that if the solar system was installed prior to October 2011, then the value of the system (and therefore the impact it will have on the value of the house as a whole) is much higher.
Was the system installed with one inverter or micro inverters?
When the solar industry took off (about the same time the feed in tariff was introduced coincidentally!), most solar PV systems were installed with one string inverter.
There are several issues with these string inverters – including efficiency of the system; basically each panel would operate at the level of the worst operating panel. The issue here though is that the high voltages going through these inverters mean they don’t last too long – in fact they last about 10 years. Therefore they need to be replaced at a cost of about £1,000.
Solar PV systems with Micro inverters installed not only have higher efficiency (electrical output), they also last for much longer because the voltages going through them is not as a high. The warranties on these tend to be in excess of 20 years – so obviously this means lower maintenance costs for the incoming occupant, therefore the system is worth more to the incumbent!
The cost of electricity
Another point to consider is the cost of electricity over time. Now this is very difficult for us to predict. At the time of writing the cost of oil is falling almost daily and as a result the cost of energy, and electricity is reducing. This is on the back of consistent 10% annual increases in energy bills we have seen over the last 8 years.
Based on historic trends we are pretty confident that the cost of electricity will increase over time, this means that energy savings today cash wise (produced from using the free solar) will be smaller than in the future.
i.e. 2000 units of electricity might cost £300 today, but 2000 units in 5 years time might cost £500.
Obviously this will make solar systems a far more attractive proposition in the future.
Insuring your solar system
The final point to consider is the costs associated with having solar panels on your roof – you may, for piece of mind, decide to insure your solar system. At a yearly cost of £250 to cover damage, theft and loss of revenue (from the feed-in tariff), that will make a sizeable dent in the revenue that you get from the feed-in tariff – obviously not everyone will take up the insurance (some people will just bear the risk), but it might be worth considering!
So there you have it – the value that solar PV adds to your home varies considerably depending on when the system was installed and also the type of system. If you still have a decent amount of time to run on the feed-in tariff though, as a cash-generating asset, it really should add to the property value.